Suppose that the income elasticity of demand for good X is positive but less than 1. Other things being equal, which of the following statements is INCORRECT?
A) Good X is a normal good.
B) The quantity demanded of good X decreases as a consumer's income declines.
C) A consumer buys more X as income rises, but the share of income spent on good X falls.
D) A consumer buys more X as income rises and the share of income spent on good X also rises.

Question

Quizplus · Accepted Answer

A positive income elasticity of demand means that as income increases, the quantity demanded of good X also increases. But since the income elasticity is less than 1, the increase in quantity demanded is proportionally less than the increase in income. Therefore, the share of income spent on good X falls as income rises, making statement D incorrect. Statement C is correct because the share of income spent on good X falls. Statement A is also correct because good X is a normal good, as income and quantity demanded are positively related. Statement B is also correct because the quantity demanded of good X decreases as a consumer's income declines.

Suppose That the Income Elasticity of Demand for Good X